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May 16, 2006

Evaluating This Year's Tax Cut

As our overseas creditors anxiously await the signing of the latest federal tax giveaway legislation, the post-mortems are starting to trickle in. Bloomberg's John Wasik gets it right in his discussion of the $70 billion tax shift recently pushed through Congress. First, here's Wasik on the alleged economic benefits of the capital gains and accelerated depreciation provisions of the bill:

While the extension of the so-called Section 179 expensing of as much as $100,000 of business assets for another two years is a boon to firms, it's doubtful whether that write- off will create or maintain any jobs. There's no credible academic evidence directly linking breaks on capital gains and dividends to increased employment or economic activity in the past two years. Yet there's little doubt as to who will benefit.

And after making it quite clear who will benefit (the wealthiest), we get this:

This newest mangling of egalitarian tax policy adds more layers of complexity and confers breaks to the minority of taxpayers who can curry favor with legislators.

Outstanding stuff. Anyone who's waded through Schedule D in the last ten years (and especially in the last four) knows that the capital gains and dividend tax cuts have had only one clear economic effect--growing the tax preparation industry.

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The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state - Adam Smith, An Inquiry Into The Nature and Causes of the Wealth of Nations, 1776